Question

John is looking for a property to buy. His savings are CHF 180’000, his annual earnings CHF 130’000. What is the maximum amount that he can pay for a property?

(Apply a target mortgage of 2/3 and maintenance cost of 1% of the collateral value)

Answer 1

The Maximum amount Mr. john can pay for buying the property is = 540,000.00

As mentioned in the question, he can only afford a 2/3 as mortgage, so

The total purchasing amount will be = his savings x 3

                                                = 180,000.00 x 3 = 540,000.00

Mortgage amount is 540,000.00 x 2/3 = 360,000.00

Maintenance cost will be = 540,000 x 1% = 5,400.00

The maximum debt for a salaried man should be 36% of his salary. Lets assume, he don’t have any other debts.

Yearly income = 130,000

So, monthly income = 130,000/12 = 10,834.00

So, the maximum payable Emi should be = 10,834 x 20% = 2166.80

In this regard, lets calculate the total loan period

We need 360,000 loan for buying the property.

Assume 8% interest per year for 20 years

EMI CALCULATION IN EXCEL

PMT(0.08/12,240,360000)

As per the formula the monthly EMI will be = 3,011.18

So, the emi amount is 28% of his monthly income.

3011.18/10834 x 100% = 28%

So, as a conclusion, we can say $3,011.18 is the maximum amount he can spend for a buying the property per month. This is how we calculated the total amount Mr. John can pay for buying the property.